In a judgment issued on February 5, 2013, the European Union’s General Court ruled that the EU should lift its sanctions against Bank Saderat, one of Iran’s largest banks.
The General Court held that the EU had failed to provide sufficient evidence that Bank Saderat was involved in the Iranian nuclear proliferation program when the EU targeted it with sanctions in July 2010.
This decision follows similar rulings by the General Court on December 11, 2012 and January 29, 2013, respectively removing Sina Bank and Bank Mellat, privately owned Iranian banks, from the EU’s sanctions list. Furthermore, a number of non-bank designees had previously successfully challenged their designations, including the Oil Turbo Compressor Company, by decision dated October 26, 2012; Kala Naft, a subsidiary of the National Iranian Oil Company, by decision dated April 25, 2012; and the electricity company Fulmen and its principal shareholder, Mr Fereydoun Mahmoudian, by decision dated March 21, 2012.
Background
On July 26, 2010, the Council of the European Union (the “Council”)—the EU institution representing the Member States—decided to sanction Bank Saderat by including it in Annex II to Council Decision 2010/413/CFSP, which, inter alia, froze the assets of entities presumed to be involved in Iran’s nuclear proliferation program. Bank Saderat was one of several Iranian banks included in Annex II, and its funds and economic resources were thereafter frozen. This decision was implemented by Council Implementing Regulation (EU) No. 668/2010 of 26 July 2010, which amended Annex V of Council Regulation No 423/2007 of 19 April 2007 to include Bank Saderat and other new sanctions targets. Council Regulation No 423/2007 had implemented UN Security Council Resolution 1737, which imposed sanctions on persons involved in Iran’s proliferation-sensitive nuclear activities and development of nuclear weapon delivery systems.
The Council’s reasoning for Bank Saderat’s designation included the position that Bank Saderat was an Iranian state-owned bank that had provided financial services for entities procuring goods or technology on behalf of Iran’s nuclear and ballistic missile programs.
On October 25, 2010, Council Regulation No. 423/2007 was repealed by Council Regulation (EU) No. 961/2010, which broadened sanctions against Iran and continued Bank Saderat’s designation in Annex VII thereto. On March 23, 2012, Council Regulation No. 961/2010 in turn was repealed by Council Regulation (EU) No. 267/2012, which clarified and further broadened sanctions against Iran, and continued Bank Saderat’s designation in Annex IX thereto. At the time of the EU General Court’s decision of February 5, 2013, Bank Saderat’s funds and economic resources were frozen pursuant to Council Regulation No. 267/2012.
Decision of the EU General Court on Bank Saderat’s Appeal
In October 2010, Bank Saderat lodged an appeal against its designation, requesting that its name be removed from the EU sanctions list on the basis that the Council had not provided any evidence of any wrongdoing or links with Iran’s nuclear proliferation program.
The Fourth Chamber of the General Court rendered a judgment on February 5, 2013. The Court held that the fact the Bank Saderat was partly owned by the Iranian state was not a ground in itself for designation, and could not justify the imposition of restrictive measures to support the allegation that the bank supported the Iranian government’s proliferation program.
The Court noted that the Council had not produced evidence or information to establish that Bank Saderat had provided illicit services to other entities listed by the Council. The Council reportedly claimed that Bank Saderat had conducted financial services and handled payments and letters of credit, allegedly relating to transactions linked to nuclear proliferation, on behalf of two such entities. The Court found that while the Council had the burden of providing evidence and information to support its claims, it failed to do so. It should be noted that the bank did not deny that it had handled export letters of credit, from third-party banks, for two of the listed entities, nor did it deny that the two entities are engaged in nuclear proliferation. However, the bank maintained that the services it provided were ordinary banking transactions unrelated to nuclear proliferation.
The Court ordered the annulment of the various measures (listed above) in relation to Bank Saderat.
Conclusion
As a result of the Court’s decision, Bank Saderat’s previously blocked assets have been unfrozen, and EU persons can deal with the bank to the extent the dealing is within the jurisdiction of the EU. It is important to note, however, that the Court’s ruling does not affect the blocking of Bank Saderat’s assets and property, or other restrictions on dealing with the bank, under US law.
The Court’s recent decisions in the cases of Sina Bank, Bank Mellat and now Bank Saderat highlight that the EU does not have unfettered discretion to designate persons for sanctions without sufficiently stating its reasons for doing so. The Court’s approach may have major implications for the EU’s targeted sanctions regime, as the EU judiciary is currently hearing appeals from some thirty other Iranian banks that have been designated. The EU’s designations of those banks, which the EU has indicated was based on classified information, may not withstand judicial scrutiny. Furthermore, non-bank designees may challenge their listings, as in the cases described above.
It should be noted that the EU did not decline to present proof in this case on the ground that it had relied on classified information, or on any other ground; rather, the judgment notes that the Council simply did not produce any evidence in reply to the Court’s request for evidence and information. As no argument regarding the confidentiality of the underlying evidence was raised, the Court did not address the propriety of relying on classified information or discuss any mechanism by which the Council could have submitted such evidence for the Court’s review.
The EU has two months to appeal the Bank Saderat decision. A Council spokesperson has stated that this decision is being reviewed, but to date no details have been made public as to whether or not the EU will appeal this or the earlier Sina Bank and Bank Mellat decisions.
It should be noted that in the US sanctions context, blocked persons can challenge their designations either administratively or in court. To challenge a designation administratively, a person can request that the Treasury Department, Office of Foreign Assets Control (OFAC) remove the person from the applicable sanctions list. See 31 Code of Federal Regulations, section 501.807. Alternatively, the person may challenge the designation in federal court under the Administrative Procedures Act. In such a proceeding, the government may submit to the court, for in camera review, classified information in support of the designation.
We will continue to keep you apprised of EU and US sanctions targeting Iran and other countries.
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